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Investors can brace for more volatility in Friday's trading session as more than $5 trillion in options are set to expire. The event, known on Wall Street as "Triple Witching," sees contracts tied to individual stocks, indexes and exchange-traded funds expire.
The quarterly event typically leads to higher trading volatility, whether that be to the upside or the downside for equities. Investors can expect elevated trading volume around the event, which comes at a crucial time following the Federal Reserver's 50-basis-point cut to interest rates.
Yahoo Finance anchor Madison Mills joins the Morning Brief to break down this trading phenomenon.
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
This post was written by John Hyland.
So we are going to focus on triple witching, and it is just as spooky as it sounds here. You're taking a look at a chart on your screen that indicates all of the options set to expire today to the tune of $5.1 trillion. Now, as a reminder, three sets of options that can expire today: index options, individual stock options, and you've also got ETF options. So what this opens the market up to: traders can take this opportunity to roll over their existing options or start some new ones, which can sometimes cause volatility in the market. And as you guys have been so greatly covering for the past 40 minutes, we had a record-breaking day on the S&P and the Dow yesterday. This market thrilled with those larger than expected rate cuts. So as we're heading into a triple witching day like this, there's already a lot of buoyancy in the market, and all of this that you can see behind me could be a huge potential risk to those all-time highs, particularly given the fact that we are in September. Again, another spooky season for the markets. September is a seasonally weak month. Historically, guys, triple witching in September has led to an average of over 1% declines in the market in the following week. It's only bucked that trend four times in history. So this is something to potentially watch out for as a negative short-term catalyst for the markets, guys.
All right, so, Amrita, we will closely track here. Thanks so much for breaking that down for us.